The console losses discussion thread (or 'how companies blow billions on products')*

[TheMightyPuck]

This may be the totally wrong place to ask this, but can you stream Amazon Unbox content to a PS3? I know you can (sort of--hugely annoying to a consumer since you don't have a clue what will stream and what won't) with an Xbox360.

 

[Shifty Geezer]

Well I think one of the assumptions we're making here at the outset is that for point of comparison, one standalone player carries the weight of ten consoles, at least in terms of movies sold. So Mintmaster's equation stays movie neutral while aiding PS3's install base as a gaming platform.

Well that's questionable as BRD's install base was a vast majority PS3 and discs were outselling HD DVDs, bought only by movie enthusiasts with deliberate intention to buy HD movies, 2:1 by the end.

Further to that, it doesn't change my point of exposure. Sure, that 1 million BRD players could account for 10 million worth of PS3 BRD sales, but then one tenth the population is going to have the chance to see and experience and be converted to BluRay. Sales of disks for the platform may be higher, but growth of the market could well be lower.

I don't know what market research was done before hand, or even exists now, so I don't see a clear-cut best solution as Mintmaster does. Sony felt a single unified platform was best, so their economists (unless Kutaragi ignored them?) couldn't have presented a clear case for separate DVD-based PS3 and standalone BRD player.

 

[Panajev2001a]

Carl, I do not think a $400 PS3 launched a little bit earlier (with just a DVD drive) would have avoided the market from being disrupted.

Would have it fared better against the Xbox 360 ? Maybe, but then if we are making "what if" scenarios we can also imagine MS with a MUCH lower RROD failure rate (and PS3 would have been positioned against the Xbox 360 pretty much as it is now) and still I cannot see the market not being disrupted by the Wii.

Also, you assume that without the BD drive Sony corp. would have allowed to go even remotely close to the same level of losses per unit at launch... for all we know they might have pushed for a much more price efficient (maybe profit generating) console.


/* SCE rant starts here:

Kutaragi was not axed because he made too many mistakes with PS3 delivering a machine that was too expensive to manufacture... MANY people in the BoD must have known what the situation was with the planned availability of key BD components (like the blu-violet laser diodes)... the project HAD to continue, but Sony to force it down the investors' throat in the short-medium term had to make a big public sacrifice...

Things started to smell bad when they started to mention the plans to disinvest in semiconductor manufacturing technology, selling the fabs, etc... it looked like undoing what Kutaragi had been planning... but then it turns out he was just as concerned about a future asset-light (like they call it now) Sony as everyone else and that it was when he was still the key Sony man that talks with Toshiba about selling the Nagasaki and Oita fabs to them started. Instead of destroying his work, Chubachi is continuing it.

SCE rant ends here... */

 

[-tkf-]

Why does it need a graphics chip, isn't that one of the things we're doing away with in this scenario? And 1GB of flash memory is like $2. Believe me when I say if Sony released this product right now, they'd *still* have a great seller on their hands - it would be the pre-eminent standalone BD player. There's not even any real development to speak of which need be done for the device; it's a PS3 stripped down to XMB and media playback functionality.

Graphics chip is the wrong word, but you would need "something" that works with the Cell processor, right?

Super Companion Chip for example. I dont know the price for 1Gb of flash memory back when the HD-DVD launched.

 

[Shifty Geezer]

No, you'd just need a video out. The graphics data would be processed entirely by Cell.

 

[-tkf-]

And, to top it all off, there's a $300 subsidy. I think a $400 price point at launch and $250-300 by the end of 2007 is very realistic. "Free" BR players with all Sony HDTV's over 40" help penetration, too (as usual, it's just a substitute for a $200 sale). It becomes the best DVD player money can buy, and it has the Sony brand.

Sell 1M of these, and HD-DVD is in no better shape than what we saw, as it doesn't reach 500K. Sell 2M and it's even more thoroughly trounced. Total subsidy costs are well under $1B.

The DVD-based PS3 does far better (it could even launch at $500 in 2005 if Sony planned for it, then drop to $400 a year later), 360 doesn't get as much initial momentum, and all is well for Sony. They get even more livingroom revenue due to having more consoles.

The only question is which strategy is better for the long term battle of taking out DVD. I don't think PS3 as it is will ever have a long term impact there. Cheap standalones are the only way to achieve that goal.

One of the reasons you didnt see "cheap" subsidized Blu-Ray players was that Sony didnt have an interest in killing the market. Toshiba only had themselves to care about, they didnt have any issues with taking loses on the players. Sony subsidized the manufacturing of the discs instead.

Afaik the issue with the launch of the PS3 wasnt just the Blu-Ray drive, it was development tools, the RSX and just having something worth playing on the Console. I dont think i would have bought it when i did if it wasnt for Blu-Ray. But maybe your right that a DVD based PS3 without games would still sell plenty, the Blu-Ray edition that we ended up with sure as hell didnt when it came out, and it even had a few games + Blu-Ray.

EDIT: If this would be so easy i wonder why Sony didnt launch a Cell Based standalone sometime in 2007 when the Cell was shrunk in die size. Maybe they just want people to buy a PS3 instead.

 

[Carl B]

Carl, I do not think a $400 PS3 launched a little bit earlier (with just a DVD drive) would have avoided the market from being disrupted.

Would have it fared better against the Xbox 360 ? Maybe, but then if we are making "what if" scenarios we can also imagine MS with a MUCH lower RROD failure rate (and PS3 would have been positioned against the Xbox 360 pretty much as it is now) and still I cannot see the market not being disrupted by the Wii.

Also, you assume that without the BD drive Sony corp. would have allowed to go even remotely close to the same level of losses per unit at launch... for all we know they might have pushed for a much more price efficient (maybe profit generating) console.

Wii would have disrupted the market no matter what, there's no argument there. But a lot of PS3's early penetration woes were linked to the public perceptions of it being a) overpriced and b) 'forcing' BD down consumers throats. I mean a flashback to the press of the day is all anyone needs to do in order to recall the almost united front the press was taking against the PS3. I do think that Sony would have benefited from early day perception improvement, from unit sales all the way down through 3rd party developer sentiment.

Also honestly my $400 assumption still pre-supposes a level of loss less than the $600 60GB PS3 at the launch window, from BD removal alone. Now almost immediately I would imagine the BD drives came down such that the $400 sans BD would have the higher loss spread, but I still think that the very first launch units would have reflected a tangible spending effort across a number of divisions as it relates to BD.

It is all various degrees of assumption though, one way or the other. I'm not saying that PS3 could have been a PS2 analogue, just that the possibility existed for a better showing in the games division then 'til now along with a potential parallel victory for BD through other means.

That's not my official stance mind you, which I don't have one of, but simply theory exploration.

/* SCE rant starts here:

Kutaragi was not axed because he made too many mistakes with PS3 delivering a machine that was too expensive to manufacture... MANY people in the BoD must have known what the situation was with the planned availability of key BD components (like the blu-violet laser diodes)... the project HAD to continue, but Sony to force it down the investors' throat in the short-medium term had to make a big public sacrifice...

Things started to smell bad when they started to mention the plans to disinvest in semiconductor manufacturing technology, selling the fabs, etc... it looked like undoing what Kutaragi had been planning... but then it turns out he was just as concerned about a future asset-light (like they call it now) Sony as everyone else and that it was when he was still the key Sony man that talks with Toshiba about selling the Nagasaki and Oita fabs to them started. Instead of destroying his work, Chubachi is continuing it.

SCE rant ends here... */

I just think it was because him and Stringer didn't get along.

I'm sure he was smiling to himself though the day Roadrunner was announced as the first PFlop supercomputer.

 

[Xalion]

I am a little confused with the assumption that 1 standalone is worth 10 consoles. Wasn't it just earlier this year that Sony released figures saying that ~87% of PS3 owners watched BluRays on their PS3s and 84% planned on "always" buying them? Seems Sony has 1 machine that is filling both markets right now. Movie lovers can buy a few games and gamers can buy a few movies - both adding to Sony's bottom line and expanding markets for them.

I'm just wondering if I have missed something in the discussion other than the notion that Sony "might" have sold more consoles early.

 

[Carl B]

I'm just wondering if I have missed something in the discussion other than the notion that Sony "might" have sold more consoles early.

I think what you missed was the week-by-week coverage that the format war got when it was in full swing. Back then - and forget Sony's PR poll numbers by the way - what was happening was that the HD DVD media sales were equating to the BD media sales in a way that translated into roughly 1/10th of the sell-through of an HD DVD player per PS3.

What's being discussed here is just a quick and dirty allusion to a topic concerning data points that spawned thousands of threads across hundreds of forums over the course of two years. B3D was luckily spared that kind of action, but delve into any of the prominent AV forums' BD/HD DVD sections from pre-2008 and see how poisonous and contentious this was.

 

[Mintmaster]

Well that's questionable as BRD's install base was a vast majority PS3 and discs were outselling HD DVDs, bought only by movie enthusiasts with deliberate intention to buy HD movies, 2:1 by the end.

Early on, PS3 had a good 20 times the sales of HD-DVD players, so 10 PS3 = 1 standalone works quite well to achieve a 2:1 ratio. Later on, BR standalones caught up to HD-DVD, and PS3 had ten times the hardware, again suggesting 10 PS3 = 1 standalone because it achieves the 2:1 ratio.

I think it's pretty close. Now, I agree that we can never know if it was all PS3 owners buying 1/10th as many movies as a standalone owner or 1/10th of PS3 owners buying as many movies as a standalone owner, but IMO most of it would be from the latter, and several people in this thread seem to agree with me.

One of the reasons you didnt see "cheap" subsidized Blu-Ray players was that Sony didnt have an interest in killing the market.

I already addressed that point multiple times. Sony had plenty of options.

 

[joker454]

Now, I agree that we can never know if it was all PS3 owners buying 1/10th as many movies as a standalone owner or 1/10th of PS3 owners buying as many movies as a standalone owner, but IMO most of it would be from the latter, and several people in this thread seem to agree with me.

I think I mess up that ps3 movie ratio a bit, up to 62 blu-ray movies so far Regarding your stripped down PS3 player theory, I wonder if it would have been possible. Assuming they yanked all the stuff you mentioned like rsx, hdd, extra memory, etc...it would still need cell in there. Cell runs fairly hot and would likely need a fan of some kind. I think the expectation of standalones is that they be able to work silently, be able to work in an enclosed a/v cabinet, and have no power brick. I wonder if a stripped down PS3 would have been able to meet that criteria back in 2006.

 

[Mintmaster]

Again, the current PS3 is viewed as the best BR player. It already has acceptable noise, cooling, power requirements, image quality, features, etc.

The stripped down one could only get better in terms of size, power req., and especially cost. With no RSX, no HDD, and a fraction of the RAM, I'm pretty sure cooling requirements would be halved at least.

 

[Xalion]

I think what you missed was the week-by-week coverage that the format war got when it was in full swing. Back then - and forget Sony's PR poll numbers by the way - what was happening was that the HD DVD media sales were equating to the BD media sales in a way that translated into roughly 1/10th of the sell-through of an HD DVD player per PS3.

I actually followed those numbers for quite a while. If you recall, the individual number of units was small enough that the install base of both formats didn't make much difference at all. Instead, the rough percentage sold week to week was solely determined by movies released and the promotions being offered at any given time.

It was also a time where purchasing was driven by "non-standard" consumers. Really only AV enthusiasts were buying either product. That can be seen by the "28:1" type attach ratios quoted by the HD DVD camp early on in their product life (even though at the time BluRay was outselling HD DVD 3.5:1 or so).

Also it would be useful to know the time this number is coming from. For instance, back when the format war was really full swing in around January of last year, HD DVD had around 200k for an install base. BluRay claimed around 1.1 million, with around 1 million of those being PS3s. While I can't remember the actual number of disks being sold, just using the ratios themselves to normalize would give you sell through rates of much closer to 1.5 : 1 or 3 : 2 rather than the 10:1 number.

I am not trying to say you guys are wrong, I just wanted more information as to where the numbers came from. Everything I've seen in the sales numbers tend to point a slightly different direction from the vein the thread was following. I am really just looking for more context.

 

[Carl B]

Well, that's a dangerous road for a number of reasons, because it's not like we should want to actually re-hash all of that drama from back in the day. But again remember that the ratios you're bringing up here are attachment rates rather than equivalency rates. When we say 10:1 we don't mean one BD for every ten PS3's, but ten PS3's for every one HD DVD standalone to reach the same number of software sales. For example - and arbitrarily - at the point where BD was outselling HD DVD 2:1 (which was the majority of the 'war' by the way, 3:1 didn't come until much much closer to the end), HD DVD might have had an install base of ~250,000 to BD's ~5,000,000.

Obviously the numbers thrown around shifted very fluidly based on the data of the day and the agenda of the poster, but I do think it's fair to say that on a per-device basis, HD DVD was a factor of ten ahead of BD (Playstation 3). I know another significant metric angle for a while was when the jabs were thrown about how PS3's attach rate was actually less than one sold BD per console. Ah... memories.

But, BD won the day by sheer force of numbers., and here we are no more than six months later discussing whether the victory could have come through any other way.

 

[-tkf-]

I already addressed that point multiple times. Sony had plenty of options.

Did i read it correct, you said they should subsidize all players instead of just their own?

 

[Xalion]

Well, that's a dangerous road for a number of reasons, because it's not like we should want to actually re-hash all of that drama from back in the day. But again remember that the ratios you're bringing up here are attachment rates rather than equivalency rates. When we say 10:1 we don't mean one BD for every ten PS3's, but ten PS3's for every one HD DVD standalone to reach the same number of software sales. For example - and arbitrarily - at the point where BD was outselling HD DVD 2:1 (which was the majority of the 'war' by the way, 3:1 didn't come until much much closer to the end), HD DVD might have had an install base of ~250,000 to BD's ~5,000,000.

This is really where I'm having trouble seeing what youa re saying. The numbers I gave were from January of 07 - which was a year before "the end" so to speak. It was where HD DVD seemed to be gaining the majority of its momentum. Please note I also stated equivalency rates - not attach rates. The only attach rate I cited was HD DVDs 28:1. We can go back and do the math though.

VideoScan released numbers for January of 07 showing that HD DVD was outsold around 2:1. At that time, there were approximately 1 million PS3s sold and only 175k HD DVD players. Counting standalone players, that put the BluRay camp at around 1.1 million. So, assume HD DVD sold x units the first two weeks of 07. That means that BluRay sold 2x units. So the equivalency rates would be defined as the number of players divided by the discs sold. The ratio is then (1100/2x)/(175/x) which is approximately 3:1.

Note that this is a factor of 7 below the 10:1 number. Now throughout the year, BluRay consistently outsold HD DVD by between 2:1 and 3:1. Without knowing the exact number of players sold in the HD DVD camp and Blu Ray camp, it is impossible to calculate the exact equivalency rate. However, we can do a rough estimate. Assume no more HD DVD players were sold and all BluRay players were PS3s. Then for a 10:1 ratio you would need (y/2x)/(175/x)=10/1 or y=3,500. So assuming no more HD DVD players were sold it would not have been until June or so that you actually got the 10:1 ratio.

Those are really bad assumptions though. Given even a minor rate for sales of standalone BluRay and HD DVD players though, it is pushing that number towards November or December before you get the 10:1 ratio.

I guess I just don't think it really isn't fair to say that HD-DVD was a factor of ten ahead of BD. Perhaps in the last couple of months, but even then it is far more likely that what you are seeing is the difference in titles and demographics rather than a "standalone" vs "game machine" type of effect. It just seems to me that people are being really loose with their numbers to support specific agendas. However, sales volumes were so low and the demographics so specialized that I don't really think they support either side in this. At the end of the day, there isn't enough data to form any statistical argument.

 

[Zaphod]

So the equivalency rates would be defined as the number of players divided by the discs sold. The ratio is then (1100/2x)/(175/x) which is approximately 3:1.

Now assume that a BD standalone sold as many discs as a HD DVD standalone and do the math for the PS3 again. Not that it matters anymore, but that's where those ratios came from.

 

[-tkf-]

However, sales volumes were so low and the demographics so specialized that I don't really think they support either side in this. At the end of the day, there isn't enough data to form any statistical argument.

Add to this the countless promotion deals that was going on on both sides, especially on the HD-DVD side.

 

[Shifty Geezer]

Adding to the discussion merits to the PS3 BRD inclusion, there's probably another benefit to the PS3 BRD inclusion which goes right back to before PS3 had a hardware configuration and price-tag and Sony were courting partners. I'm sure when Sony approached companies for BRD backing, the idea of a tens-of-millions selling console resulting in huge format penetration was appealing. If instead, back in '04 or 05 or whenever, Sony were instead saying 'we'll subsidize our own range of standalone players and PS3 will be DVD based' then the choice between HD DVD and BRD would have lost significant weight on the BRD side. The inclusion of BRD only really looked like a dumb idea when we saw the price tag. Prior to that many of us were aying BRD's success was a forgone conclusion with loads of BRD-equipped PS3's out there. In hindsight there's a good reason to think a standalone and cheaper PS3 would have been more successful for Sony, but some years earlier, without any pricepoints, are the same arguments anything like as strong?

 

[-tkf-]

Adding to the discussion merits to the PS3 BRD inclusion, there's probably another benefit to the PS3 BRD inclusion which goes right back to before PS3 had a hardware configuration and price-tag and Sony were courting partners. I'm sure when Sony approached companies for BRD backing, the idea of a tens-of-millions selling console resulting in huge format penetration was appealing. If instead, back in '04 or 05 or whenever, Sony were instead saying 'we'll subsidize our own range of standalone players and PS3 will be DVD based' then the choice between HD DVD and BRD would have lost significant weight on the BRD side. The inclusion of BRD only really looked like a dumb idea when we saw the price tag. Prior to that many of us were aying BRD's success was a forgone conclusion with loads of BRD-equipped PS3's out there. In hindsight there's a good reason to think a standalone and cheaper PS3 would have been more successful for Sony, but some years earlier, without any pricepoints, are the same arguments anything like as strong?

Would Sony even have considered making a standalone player based on the Cell chip and a BR drive if the Console was meant to be DVD based?
If Sony had planned that the PS3 shouldn´t come with a BR drive would it have helped significantly on the launch date?
Would an earlier launch have meant anything if there wasnt software to support it (the game development didnt seem to be slowed by the BR drive).
Wouldnt a console without any special extras and a weak gaming catalogue have made Sony look worse?
The 360 would still be cheaper thanks to it´s "no hd needed" aproach.

I think that Sony had expected to sell more consoles just on the brand, even if it was priced at 499,- (vs 400 dollars for a 360?) I guess they didnt anticipated the hate machine and they were to stupid to see how incredible arrogant they looked.

The weird thing is, if Sony had sold alot more PS3´s wouldnt they have lost even more money? And still, they won the war thanks to the PS3 so...